With an authorisation agreement, one person (mandatary) undertakes the obligation to provide to another person (mandator) a certain service (e.g. consultations, legal assistance, training) and another person will pay a fee for it.

This agreement is suitable for using in the following cases:

• A contract is concluded for the provision of a service.
• The contracting entity is a legal entity and the service provider is a natural person.
• A fee is paid to the service provider.
• The service provider, unlike persons employed under the contract of employment, has more flexibility in deciding where, how and when they provide the service.
• The final result of the service provision does not depend only on the service provider.

How does an authorisation agreement differ from a contract of employment?
In case of an authorisation agreement, the service provider has more independence when performing their duties than an employee doing the same under a contract of employment. In case of an authorisation agreement, a service provider can freely decide the time, place and manner of their work. There are no mandatory terms and conditions arising from the law for the authorisation agreement (e.g. minimum pay, rest and work time rules).

In case of a contract of employment, an employee is more dependent on the employer and must subject to the instructions and orders of the employer.

How does an authorisation agreement differ from a contract for services?
In case of an authorisation agreement, a service provider (e.g. a lawyer) must perform their tasks as required and work in the name of achieving the goal (e.g. defend the client in court in the best way possible). If the goal is not achieved (the lawyer’s client loses in court), this does not mean that the contract has been breached.

A contract for services is aimed at achieving a result (e.g. building a sauna). If the result is not achieved (e.g. the sauna is not completed in due time), this constitutes breach of contract.

Does the service provider have to provide the service personally?
The parties to the agreement may agree in the authorisation agreement if the service provider is required to provide the service personally or they may transfer the provision of the service to a third person.

If there is no agreement on whether the service must be provided personally, the rule set out in the Law of Obligations Act according to which it is presumed that the service provider must provide the service personally, shall be applied. The service provider may use the assistance of a third person when providing the service.

Does a fee have to be paid for providing a service?
The parties may agree in the authorisation agreement the amount of the payment to be paid for the service. In case of the authorisation agreement, the Law of Obligations Act also allows for an agreement according to which a service is provided free of charge.

What is the term for an authorisation agreement?
An authorisation agreement may be concluded for a specified term (e.g. for carrying out a 2-hour training) as well as without a fixed term. The parties have the freedom to decide on the duration of the agreement.

Under which conditions can an authorisation agreement be cancelled?
The parties may agree in the authorisation agreement under which conditions they can cancel the authorisation agreement. For example, the contract may include an agreement that either of the parties may cancel the authorisation agreement at any time without reason by notifying the other party for example seven days in advance.

If the agreement does not contain a provision regarding the termination, the rules of the Law of Obligations Act apply. According to the Law of Obligations Act (Section 630(1)) both parties have the right to cancel an authorisation agreement entered into for an unspecified term at any time until the mandate is performed. However, a mandatary has the right to cancel an authorisation agreement entered into for an unspecified term only on condition that the mandator can receive the service or enter into the transaction which is the object of the mandate in another manner. If the mandatary cancels the authorisation agreement without considering the above, the mandatary shall compensate the mandator for any damage caused thereby (Section 630(2)).

If an authorisation agreement is entered into for the life of one party or for a period longer than five years, the mandatary has the right to cancel the contract once five years have passed from the date of entry into the contract by giving at least six months' advance notice (Section 630(3)).

Both parties have the right to cancel both an authorisation agreement entered into for a specified term and an authorisation agreement entered into for unspecified term without observing the principles set out above if it becomes evident that, bearing in mind all the circumstances and the interests of both parties, the party wishing to cancel the agreement cannot be expected to continue performance of the authorisation agreement until expiry of the term for cancellation or the term of the agreement or until the mandate is performed (Section 631).

If acompany concludes an authorisation agreement with a natural person, which taxes does the company have to pay on the fee for the provision of services?
A company is required to pay income tax, social tax, funded pension payments (if the person has subscribed to the second pillar of pensions) and unemployment insurance premiums on the sum paid out.